Brookfield Renewable: Hydro, Wind, Solar and Energy Storage

There’s no faster way to grow a business than by making acquisitions. The trick few master is finding deals with upside from simply following core competencies, and made at the right price, notes Roger Conrad, income expert and editor of Conrad's Utility Investor.

But neither has been a problem for our conservative portfolio holding Brookfield Renewable Energy Partners (BEP). A decade ago, the company was a sleepy income trust owner of mainly hydroelectric facilities affiliated with Brookfield Asset Management (BAM).

Today, it runs a global portfolio of 17 gigawatts of operating hydro, wind, solar and energy storage across four continents, with another 8 GW under development.

The company has historically spent an average of $500 to $700 million a year on acquisitions. The real growth driver, however, has been what happens after closing deals, driving renewable energy returns on investment of 12 to 15 percent, while rivals typically achieve 7 to 8 percent.

Success means seeing opportunity first and having resources to immediately capitalize. That was Europe when Brookfield entered in 2012.

A few years later, it was Colombia’s vast hydro system. Last year, the company bought the former TerraForm Global and controlling interest in then-floundering yieldco TerraForm Power (NTERP).

TerraForm Power’s guidance beating fourth quarter results and 6 percent dividend boost announced last month are thanks to two actions taken by Brookfield: Backstopping the acquisition of the former Saeta Yield of Spain, and efficiency efforts coupled with resetting debt obligations to reflect the parent’s superior balance sheet.

This is also a potential roadmap for Brookfield’s latest coup: A CAD750 million strategic investment in TranAlta Corp (TAC).

The battered Canadian power company gets badly needed cash. In return, Brookfield will own 9 percent as well as two board seats. More important, it will co-manage TransAlta’s extensive hydro assets, which gain great value when Alberta power sales agreements expire next year.

Even if Brookfield doesn’t ultimately buy out TransAlta or its yieldco affiliate TransAlta Renewables Inc (TTRSWF), it gains a valuable new revenue stream to fund 5 to 8 percent annual dividend growth long-term. Buy up to $35 if you haven’t yet.